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Using The Tax System To Finance A College Education
By: Shaan Randow
For almost every family in America except the very rich trying to figure out a
way to pay for their children’s college education is a very real and pressing
concern. A four year program at the cheapest public school in the country will
cost from $40,000.00 to $50,000.00 a year and at a good school you are looking
at least $100,000.00 a year and probably more.
That’s why you have to start planning now for that happy day when it’s time for
your kids to head off to college and the good news is that you can use the tax
system to help pay for the bills. In 2001 the United States Congress approved
$29 billion in tax cuts for families facing education bills and you should at
least get your share of that money to help finance your families college
education plans.
The changes included increasing the contribution limit under the Education IRA
from $500 a year to $2,000 for each child under age 18 into a special Education
Individual Retirement Account. You get to take this money out without paying
taxes when your child enters college and along the way you get tax-deferred
growth and tax-free withdrawals.
There are some restrictions on qualifying for the Education IRA phases out if
your income is over $100,000.00 individually or $200,000 as a couple but if you
don’t qualify you can set the account up under a grandparents name.
There are also education tax credits that help defray the cost of a college
education and they include the Hope Scholarship and the Lifetime Learning
Credit.
The Hope Scholarship offers a tax credit of up to $1,500 a year for the first
two taxable years that your child is in college. You get a dollar-for-dollar tax
credit for the first $1,000 of tuition and related expenses and 50 cents on the
dollar on the next $1,000.
The Lifetime Learning Credit applies to expenses for academic periods, and can
be used any year for an unlimited number of years. It provides a 20% credit on
the first $10,000 of qualified expenses that also includes educational expenses
to acquire or to improve job skills.
Once again, these tax credits are phased out by income levels of between $80,000
and $100,000 for family incomes and $40,000 to $50,000 for single filers. Please
note however that you can’t use an Education IRA and a tax credit to pay for the
same expenses.
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This article provided courtesy of http://www.degrees-online.net |
